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Carving out the middle ground

by Kathleen Masterson

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Kathleen Masterson

July 24, 2011 - 7:00pm

Despite its rise in popularity, local food remains something of a "boutique industry." It's frequently sold in small quantities to an individual buyer, sometimes out of the back of a pick-up or through a farmer calling restaurants to say he's got tomatoes.

But as bigger buyers - universities, hospitals, grocery stores and others - seek local food, it's become clear that there's a gap in the supply chain. Most of these institutions simply aren't structured to call up multiple farmers to source lettuce or other products.

Enter the local food middleman.

Photo by Kathleen Masterson, Harvest Public Radio

Ryan Jepsen and his wife started Grass Run Farms in 2006 to sell grass-fed beef and hogs. With more demand than they could meet, they began buying from other farmers, and found themselves stepping into the role of local foods middlemen.

An accidental businessman

Ryan Jepsen never set out to be in the foods business, let alone become a distributor. But just five years after getting into local food, that's where he's found himself.

In 2006, Jepsen and his wife Kristine started their own farm in Decorah, Iowa; they began with just five cows, 10 feeder pigs and about 20 chickens. They sold their grass-fed beef and pork at farmers markets, groceries and a local college.

Grass-fed beef was - and is - a hot ticket item, and the Jepsens were getting more demand than they could supply. But still, they weren't making enough money to live on.

"If we don't make any money what we're doing is really in vain," Ryan Jepsen said. "And I think that's what's lost on people in this whole environmentally friendly local, sustainable foods thing is very little of it is done on economy of scale, that has cash flow, return on investments, balance sheets, investors and people involved that get business."

Jepsen said he has nothing against hobby farmers, but shouldn't a full-time farmer be able to make enough money to support his family?

SoJepsen scaled up. He bought a refrigerated truck and hired a driver. He rented a cooler for storage and got insurance. He started buying grass-fed cows and pigs form other Midwestern farmers and selling the meat under his company, Grass-Run Farms.

Jepsen became a local foods middleman, though not without some concerns.

"There's a ton of farmers that trash the middleman," Jepsen said, but he argues that the middleman serves a purpose in the marketplace by taking on risk.

As a new distributor, Jepsen said he's had to take on debt to create the whole supply chain infrastructure from scratch.

Jepsen said he just can't compete financially - and in terms of efficiency - with bigger companies processing upwards of 5,000 cattle a day. He said those companies ship full truckloads of meat and have a market for nearly every piece of the cow. Jepsen, meanwhile, might ship less than a full truck of meat, which drives his cost per unit much higher. And he doesn't always have a market for every part of the cow, so he might have to store some cuts and try to sell them later.

"Most local, sustainable foods, or things labeled with that, are incredibly inefficient, way too much energy and labor involved per unit of whatever that goes out the door. We can't compete with Hawkeye foods, Sysco foods," he said, referring to some of the larger food distributors.

The big guys go local

Hawkeye Foodservice Distribution, based in Corralville, Iowa, has distinct advantages in getting into the local foods game over someone like Jepsen. Hawkeye has extensive cold storage facilities and refrigerated trucks already making deliveries across the Midwest. The company has a full-time sales team and staff with years of experience in food distribution. And capital.

Still Hawkeye Foods president Jeff Braverman said initially he resisted getting involved with local foods because he saw it as just a passing trend.

"It was very specialized, and not real practical but nice, made you feel good," said Braverman. "And I think it became not a trend but a real segment of our business - when we started having large scale customers say if you build it they will come, like the casino, we'll buy it if you have it. And that kind of made it seem real."

Two years ago, Hawkeye opened a branch called Local Harvest Supply. As the name suggests, it buys food from local farmers - everything from tomatoes to garlic to beef to cheese - and sells it to restaurants and hospitals and schools.

Local Harvest Supply general manager Phil Danowsky said he's had to teach the Hawkeye sales team about local foods - how to know what's fresh when and how to pitch it to existing clients. And in the beginning, Danowsky struggled just to find farmers to grow for the fledging company.

"I found out very quickly, that you can send a farmer an email or you can leave them a voicemail message, and you don't hear from them," said Danowsky. "So quite honestly, it was a matter of getting in my car, driving around the state of Iowa, and using my little GPS to find these farmers, and going out and talking to them while they're working in their fields. This is a very personal business."

Now in the second growing season, Danowsky has farmers calling him, asking if he'll sell their product.

The company is pleased with the growth of Local Harvest Supply, though it does not yet have a positive cash flow.

"It's still less than 1 percent total sales; our goal is for it to become significant part of what we sell," Braverman said.

He added that there is great potential to create a viable local foods system in the Midwest. If they know have a market - a distributor - for their food, local farmers can work to control their costs and even extend their growing season by installing hoop houses and irrigation. And, Braverman said he anticipates the cost of shipping will only go up in the future, which makes buying food grown in your backyard even more appealing.

Back at Grass Run Farms, Jepsen is trying to broaden his market too. He recognizes this move might be a disconnect for those who see local food as a direct relationship between farmers and consumers, but he's excited about the new opportunities.

"We're going to lower our carbon footprint, be way more efficient and be able to scale up by teaming with people who already have that infrastructure, trucks and sales force, already going," Jepsen said.